What is an insolvency practitioner and what are their duties?

If your company is experiencing financial distress, you may be considering appointing the services of an insolvency practitioner to help you navigate your current situation. Unless you have dealt with an insolvency practitioner previously, you may be unsure exactly what they do and what their duties are once you appoint one to assist with your company.

As a business owner, it is important you know the roles and responsibilities of an insolvency practitioner and understand the value they can add to your business, particularly during the early stages of financial distress.

What is an insolvency practitioner?

An insolvency practitioner – sometimes abbreviated to IP – is someone who is licensed to act on behalf of companies and individuals when they are facing insolvency or acute financial distress. An IP is also able to help directors of solvent companies who have chosen to liquidate their company by way of a Members’ Voluntary Liquidation (MVL) in order to extract held profits.

In the majority of cases, a company director will voluntarily approach an IP and enlist their help in dealing with their distressed company. In matters of compulsory liquidation, the courts will appoint an Official Receiver who will act as the provisional liquidator. They may later request that an insolvency practitioner be appointed to take the liquidation forward.

Is an insolvency practitioner the same as a liquidator?

A liquidator is one of a variety of roles an insolvency practitioner assumes depending on the case they have been appointed to deal with. In matters concerning limited companies, the three main roles an IP will undertake are as follows:

• Liquidator – Acting as a liquidator in both solvent and insolvent company liquidations, the insolvency practitioner’s role here is to realise company assets and ensure these are distributed appropriately to creditors. In insolvent liquidations such as Creditors’ Voluntary Liquidations (CVLs), creditors typically comprise of suppliers, banks, and other lenders; in an MVL, which is the liquidation of a solvent company, it is directors and shareholders who are often in line to receive the proceeds.
• Administrator – An insolvency practitioner will be appointed the administrator of a company in both administration and pre-pack administration cases. They will work to realise a better outcome for creditors whether this is through arranging a sale of the company or facilitating an ordered shutdown of the business.
• Nominee and Supervisor – In Company Voluntary Arrangements (CVAs), an insolvency practitioner will take on the dual roles of nominee and supervisor. They will first act as a ‘nominee’ and will be responsible for putting together a viable proposal for the CVA. A Statement of Affairs (SOA) will be produced and creditors will be informed how much they could expect to receive should the CVA be implemented. Once the CVA has been passed by creditors, the insolvency practitioner will become ‘supervisor’ of the agreement and will oversee matters throughout the duration of the CVA. The ongoing performance of the business will be monitored to ensure the company remains on track to complete the CVA and emerge with a good chance of enjoying a successful future.

What qualifications does an insolvency practitioner have?

Due to the career path many insolvency practitioners take to get into the job, many will have accountancy qualifications such as ACCA, ACA, or CIMA. However, this is not necessary, nor does an accountancy qualification mean you are able to work as an insolvency practitioner.

In order to be a licensed insolvency practitioner, an individual will need to pass the JIEB (Joint Insolvency Examination Board) set of examinations. The exams are made up of two papers both of which need to be passed in order for the qualification to be awarded. The exams test knowledge of both personal and corporate insolvency law as well as assessing how well the candidate can apply this to real-world scenarios.  The JIEB exams are known for being extremely tough, and only those holding an in-depth working understanding of insolvency will be able to pass.

It is vitally important you check the credentials of an insolvency practitioner before signing up with them. Some companies offer insolvency advice but due to not having a licensed IP themselves, they will refer you elsewhere and charge you a fee for doing so. Ensure you are talking to a firm with their own in-house licensed insolvency practitioners.

Are insolvency practitioners regulated?

Insolvency in the UK is regulated under the Insolvency Act 1986, with IPs being subject to regular inspections by their governing body. There are several recognised professional bodies including IPA, ICAEW, ICAS, all, however, adhere to the same strict standards of performance and required levels of professional conduct.

How much does an insolvency practitioner cost?

Costs of employing the services of an insolvency practitioner will vary depending on the individual case and the amount of work and time which is likely to be involved. However, for a straightforward CVL, expect to pay somewhere in the region of £5,000 and slightly less for an average MVL.

CVAs and administration cases are typically more time-intensive and with fees accumulating over time, costs are generally more than they are for a shutdown liquidation. CVAs involve an ongoing monthly supervisor’s fee, although this cost is built into the payment your company has agreed to pay creditors as part of the arrangement. As this cost will be deducted from the amount available to creditors, they are the ones who decide what share the insolvency practitioner will take for supervising the procedure.

Company assets are usually used to finance the cost of the chosen insolvency procedure, although in some cases, particularly CVLs, there are insufficient funds to cover this. Directors may then be called upon to use personal capital or otherwise source the necessary funds themselves.

When should I contact an insolvency practitioner?

For many companies, appointing an insolvency practitioner is often done when distress levels get to an unmanageable point and directors find they can no longer continue with the current situation. A licensed insolvency practitioner will be able to step in at this stage, assess the options, and recommend the best course of action.

However, an insolvency practitioner is much more valuable to your company the earlier you seek their advice. By contacting an insolvency practitioner during the initial stages of distress, you will be giving your company the very best chance of survival. A wider range of rescue and recovery options will be available to you including negotiating with creditors informally through a Time to Pay (TPP), or formally by way of a CVA. When it has been left too late, it is often the case that a complete shutdown in the form of a CVL is the only realistic option.

Can my choice of insolvency practitioner be changed?

An insolvency practitioner can be removed or replaced by creditors during a decision procedure. Creditors will be invited to vote upon the proposed insolvency practitioner before they are formally appointed. If the decision is made to remove the insolvency practitioner, creditors must nominate a liquidator or administrator of their choice to take over the role. 

If you are not happy with the service, conduct, or professionalism of an insolvency practitioner after you have appointed them to handle the liquidation or administration of your company, you should first make your concerns known to them directly. If you are still unsatisfied you can make a formal complaint to their authorising body; this must be done within 3 years of the event or issue you are complaining about.

How do I find a local licensed insolvency practitioner?

Many directors will be recommended the services of an insolvency practitioner from their accountant, solicitor, or other trusted professional. While professional recommendations are undoubtedly useful, you should still be vigilant and ensure the IP you have been referred to is licensed and in a position to take insolvency appointments. Alternatively, you will be able to find an insolvency practitioner online. Choose one you feel comfortable with, and again ensure you check their credibility before signing up.

While you may choose to opt for an insolvency practitioner who is local to you, in the vast majority of cases this will not be necessary unless you prefer to do this. This is because most insolvency processes will not require you to attend any face-to-face meetings with your insolvency practitioner; instead communication will take the form of phone calls, emails, and electronic transfer of documents.

The government have a fully searchable database which will allows you to either find a local insolvency practitioner based on location or postcode, or alternatively you can use this service to verify the credentials of an insolvency practitioner you are already in contact with. If you are unable to confirm they hold a license to take insolvency appointments you should halt proceedings until you are sure you are working with a reputable firm.

With over 70 licensed insolvency practitioners and over 100 offices up and down the country, Begbies Traynor is the UK’s number one for business recovery. We offer a free initial consultation where you can learn more about your options and understand the position your company is in. Call us today on 0800 063 9221 for immediate advice.